Eonomic Growth Models: Solow, Lewis, and Malthusian Model

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Economic Development
Comparison and Contrast of the Solow Model, the Lewis Model, and the Malthusian Model of Growth and Development
The Solow model is categorized under the exogenous economic growth models. The key determinant of the model is the change of output levels of an economy due to variations in the savings rate, population growth rate, and technological progress. In the Lewis model, the structural change or the transformation process begins with the increase of demand in the industry following the changes in international markets, government purchases, or domestic consumer tastes. The key determinants of the Malthusian model include a positive influence of the living standards on the population growth rate and existence of fixed resources. Both the Solow model and the Malthusian address the role of diminishing returns. In Solow, the diminishing returns affect the capital’s “birth” rate while in Malthusian setting, they influence the population death rate. The Solow model appears to be most accurate since countries with the same saving rate, population growth rate, and capital depreciation rate have been found to have a steady state. In the event of a conditional convergence, as the Solow model predicts, poorer states are likely to experience a fast growth of their economies.
Todaro Model
The Todaro model provides a short-run analysis of underemployment in the informal sector in the urban areas and the labor migration between urban and rural areas. The model holds that the wages influence the migration of workers from one sector another. In this respect, workers are said to decide or determine their migration. However, the model can be criticized on two grounds. First, there is no sufficient proof to support the aspect of rigid wage in the context of the modern sector. The wage differentials across varied sectors are increasingly influenced by minimum wage legislation, trade union pressure, and firm-specific training costs. Secondly, the aspects of rational migrants and discount rates are ignored in the model. The policy interventions emerging from the Todaro model aim include restrictions on and disincentives to migration, wage subsidies, policy on inequality.
Causes of Economic Growth
There are two critical factors that cause economic growth – an increase in productive capacity (aggregate supply) and a surge in aggregate demand. These factors are combined with important elements, such as human capital, technology, labor, population, natural resources, and infrastructure. Neo-classical theory describes economic growth in terms of the supply-side factors – factor inputs, workforce, and labor productivity. Endogenous growth model identifies the causes of eco...